Daimler AG improved its full-year profit forecast after earnings bounced back last quarter as it posted robust sales in China and cost cuts started to bear fruit at the maker of Mercedes-Benz luxury cars.
Daimler now expects earnings before interest and taxes to match the prior-year level, after previously forecasting a drop. The Stuttgart, Germany-based manufacturer anticipates markedly higher industrial free cash flow but also warned that group revenue will decline significantly because of the pandemic.
The company’s more upbeat earnings outlook adds to evidence of a global auto industry recovery after manufacturers including BMW AG and Tesla Inc. posted better-than-expected third-quarter figures. Renault SA on Friday reported sales that topped estimates.
Daimler navigated the steepest slump since World War II — triggered by the pandemic — better than feared mainly because of a swift rebound in China, its largest market. The country is set to be the first to bounce back to 2019 volume levels, albeit only by 2022, according to researchers including S&P Global Ratings.
Daimler rose as much as 2.5% in early Frankfurt trading. That helped drive the Stoxx 600 Automobiles & Parts Index to a 1.5% gain, with French tire maker Michelin and Renault among the biggest winners.
Chief Executive Officer Ola Kallenius also made progress restoring confidence among investors that his deepened restructuring push is gaining traction after a bumpy start. The CEO wants the luxury-car and truck maker to put less emphasis on volume and more on improving returns in the midst of a costly shift to electric vehicles.
Daimler is targeting an adjusted Ebit margin of between 4.5% and 5.5% for the full year at the unit that comprises the car and van operations. The margin goal for the trucks division, one of the world’s largest producers of commercial vehicles, is between 1% and 2%.
Daimler noted that its outlook is based on economies in its most important markets averting further lockdowns and normalizing. Countries including Germany and France, where Daimler runs factories, experience record infections and governments are scrambling for an adequate response.
Fourth-quarter demand so far has been “encouraging,” and is expected to be higher than last quarter but lower than the prior-year period, Chief Financial Officer Harald Wilhelm said during a call with analysts. Daimler released preliminary results last week that were well above analyst estimates.
The company’s main labor union IG Metall and employer association Suedwestmetall urged people to adhere to social distancing and hygiene rules. A further spread of the virus would threaten “the economic survival of companies — and many jobs,” IG Metall’s regional chief and Daimler supervisory board member Roman Zitzelsberger said Thursday.
Daimler shares have declined 1% this year, valuing the company at about 52 billion euros ($61 billion). While the stock has fared better than that of German rivals Volkswagen AG and BMW, Tesla Inc. passed everyone this year to become the world’s most valuable automaker.